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August 26, 1981


The opinion of the court was delivered by: GREENE


Plaintiff, whose employees are former participants in the defendant pension fund, brought this action to challenge the cancellation of certain benefits of its employees as a result of plaintiff's termination of participation in the pension plan. Under the terms of the pension agreement, the employees of plaintiff at the time it joined the plan were entitled to "past service credit" for their years of service with Central Tool to count toward meeting the plan's vesting and benefit requirements. Another provision of the plan, however, mandated forfeiture of that credit in the event the employer subsequently terminated its participation in the plan. *fn1" Several exceptions to the forfeiture rule relieve specified categories of employees from the harsh effects of the forfeiture provision. *fn2"

 Plaintiff challenges the forfeiture provision of the plan agreement under section 302(c)(5) of the Labor-Management Relations Act, 29 U.S.C. § 186(c)(5), which allows payments to pension and similar trust funds only if they are "for the sole and exclusive benefit of the employees." This Court has jurisdiction under section 302(e), 29 U.S.C. § 186(e), to restrain violations of subsection (c)(5), including alleged structural violations, such as the forfeiture provision to which plaintiff objects here. The legal standard for judicial review in this Circuit is whether the provision is "arbitrary or capricious in light of all of the circumstances involved." Norton v. I. A. M. National Pension Fund, 180 U.S. App. D.C. 176, 553 F.2d 1352, 1356 (D.C.Cir.1977). Currently before the Court are cross-motions for summary judgment.


 Plaintiff became a contributing employer in defendants' pension plan on July 1, 1970. The plan agreement provided that Central Tool's employees would be granted "past service credits" for all years of their prior employment with plaintiff and that added to these past credits would be "future service credits" for each employee for continued employment with plaintiff after July 1, 1970. Past service credits and future service credits were added together in determining satisfaction of vesting requirements and setting amounts of benefits, an employee's benefits becoming vested when he accrued ten years of combined service credits, including at least five years of future service credit, and when he reached fifty years of age. Significantly for purposes of this litigation, the agreement further provided, however, that employees of an employer which terminated participation in the plan would lose their past service credits, the only exceptions being employees of an employer which went out of business and those who ceased working for an employer more than two years before it terminated its participation in the plan.

 The purpose of the forfeiture provision was to provide an incentive for contributing employers to remain with defendants' plan and to protect the plan from paying potentially large benefits to employees whose employer had made comparatively few contributions to the pension fund. The exceptions were intended to exempt employees who could not be held responsible for their employer's termination of participation.

 Three years after plaintiff joined the plan, several changes in the plan's forfeiture terms were adopted. Additional exceptions from the forfeiture provision were added for the benefit of employees who terminated their employment within thirty days after their employer terminated plan participation; for employees whose bargaining unit transferred to another union lodge belonging to defendants' fund; and for employees who managed, within eight years of their employer's termination, to earn five years of future service credit in defendants' fund through employment elsewhere. *fn3" A final relevant exception to the forfeiture provisions was apparently adopted in 1978, when employees who were already receiving pensions before their employer's termination or who had already applied for pensions and had begun receiving benefits within two months after their employer had terminated were exempted from these provisions.

 Central Tool terminated its participation in defendants' plan on June 30, 1978, and, in accordance with the provisions of the plan agreement, defendants cancelled the past service credits for all of Central Tool's employees who did not fit into any of the excepted categories. Inasmuch as Central Tool agreed at the time of its termination of participation in defendant's plan to establish its own pension fund for the benefit of its employees and to pay the benefits that would have been paid under defendants' plan, the cancellation by defendants of the past service credits increased the company's liability to its employees. On this basis, it brought this action to challenge the forfeiture provisions of defendants' plan under ERISA *fn4" and the Labor-Management Relations Act.


 Plaintiff's claims that the forfeiture provisions are arbitrary and capricious and, hence, that they constitute a structural violation of section 302(c)(5) may conveniently be discussed under three headings: the provisions on their face; their operation with respect to different groups of employees; and their application to any of plaintiff's employees in this instance.

 With regard to the facial validity of the provision, plaintiff contends that they were not actuarially based, cannot be actuarially justified, and, hence, constitute an impermissible penalty; that they leave employees with the inherently impermissibly hard choice of quitting or losing benefits; and that they arbitrarily impose a technical bar to benefits for employees who were powerless to affect the employer's termination from defendants' plan. There exist, plaintiff suggests, more reasonable methods to protect defendants from assuming substantial unfunded liability which would not cause the drastic consequences of the forfeiture provisions imposed here. These arguments can fairly be summarized as a contention that the forfeiture provisions do not bear a close enough relationship to the purposes for which they were designed and that since less onerous means for accomplishing those legitimate purposes can be used, these terms should be invalidated as arbitrary and capricious on their face.

 Second, plaintiff argues that the forfeiture clause is arbitrary and capricious in the way in which it differentiates among participants, by, for example, excepting employees who terminated employment three years before plaintiff dropped out of the plan, but including employees who quit one year before plaintiff terminated its participation, even though more contributions were paid on behalf of the latter than for the former. Irrespective of the reasonableness of the overall specification of forfeiture of credited service, once the decision is made to except some categories of employees from those provisions, plaintiff suggests, the excepted categories must be designated rationally, so as to avoid discriminating among employees arbitrarily.

 Third, plaintiff argues that the forfeiture provisions cannot be applied to its employees because of lack of adequate notice. Thus, it is said, the plan summary in the pension plan booklet distributed to employees states that those who have satisfied the vesting requirements of the plan are entitled to "freeze" their accumulated pension credits, and there is no reference to the possibility that the forfeiture provisions may override pension rights that have vested; and, more directly, that defendants failed to notify plaintiff's employees at the time of plaintiff's termination that they had the option to preserve their credited service by terminating their employment with Central Tool within thirty days.

 Defendants argue in response that the forfeiture provisions constitute a rational approach to the problem of unfunded liability resulting from an employer's withdrawal from the pension fund, especially since the plan could have denied all credit for past service. In this view, cancellation of past service credits for employees of terminating employers bears a rational nexus to the goal of controlling the pension fund's exposure to unfunded liability and, hence, is not arbitrary. The exceptions from the forfeiture provision represent, in defendants' view, attempts to exempt those categories of employees for whom cancellation of credited service would provide no meaningful incentive for continued plan participation (such as employees of employers who terminated participation because they went out of business, an event obviously beyond the control of the employees). The fact that the exceptions do not allow for a perfect differentiation between those employees who are partially responsible for an employer's termination and those who are not does not ...

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